Property & Casualty Update

We are all adapting to a new, hopefully, short-term reality which is generating an enormous amount of uncertainty and an increasing number of questions. Our first concern is for family, friends and associates, to ensure they are safe, aware and making good decisions to protect their health and well-being. As your commercial insurance consultant and risk advisor, we are keenly aware you have many questions how commercial insurance policies may or may not respond to this unprecedented event in modern times.

Your Service Team and other Associates at The Plexus Groupe continue to analyze potential broadening components of insurance policies to maximize the benefits available under your insurance policies. Further, we are tapping into outside legal counsel, third-party coverage consultants and other industry sources to augment our analysis. There remains much uncertainty concerning the COVID-19 situation. Insurance policies have not been previously tested under these types of unique conditions, and it will take time for certainty to be achieved. Following are brief comments drawn from numerous sources regarding a few commercial insurance policies and the current assessment of coverage applicability:

It’s expected that most property policies may not be triggered by COVID-19 losses because shutdowns caused by pandemics generally do not meet the physical damage trigger requirement inherent in standard property policies, and pandemics are often specifically excluded, and not a Covered Peril. However, if a coverage extension was made available by an insurance company that includes coverage for business income losses resulting from the enforcement of a law or ordinance by an authorized governmental agency intended to mitigate the spread of communicable disease, some limited coverage may exist. The coverage effectively adds a communicable disease trigger to the Civil Authority coverage extension.

This is relevant to Time Element (Business Interruption) coverage as well. However, if there is coverage, it is most likely on a policy for hospitality or retail under “Loss of Attraction,” “Communicable Diseases” or “Special Perils Business Interruption,” if endorsed to the policy by the insurance company. These extensions are generally applicable to extra expenses, are sub-limited and usually do not extend to loss of income. Cover is further restricted to the length of time to repair or replace as well as any extended period of indemnity.

By definition, the Commercial General Liability Policy (CGL) “provides coverage to a business for bodily injury, personal injury, and property damage caused by the business’ operations, products, or injury that occurs on the business’ premises” for which the insured is legally liable. Liability for COVID-19 or any similar outbreak could arise out of an insured’s failure to protect individuals and or their property against infection of such viruses. For example, if a hospitality venue such as concert hall, restaurant or hotel had knowledge of contamination and did not take adequate precautions to stop the spread at their location. In general, the standard CGL form does not exclude coverage for such diseases, but be careful as the exclusion for cover could be added on by endorsement in the form of a communicable diseases or within the Pollution Liability exclusion of the CGL, depending on the policies definition of “pollutant.”

The answer is that it’s possible, but a thorough investigation will be required prior to making that determination. In the United States, all states contain coverage for occupational diseases within the applicable workers compensation policy. While workers compensation laws, regulations, and case law vary by state; generally, as in all occupational disease claims, for a disease such as coronavirus to be compensable, the workers’ compensation statutes require that the disease:

•  Arise out of and in the course of employment;

•  Be proven to be the result of a workplace exposure; and

•  Arise due to employment that places the employee at a substantially greater risk of contracting the disease or condition than the risk experienced by the general public.

Medical professional in both hospitals and senior care facilities are on the front lines of handling patients infected with COVID-19, making them vulnerable to failure to protect patients, misdiagnosis, health practice quarantines, ceasing operations due to an outbreak on premises, etc.  Any unintentional oversight which may put a patient at risk creates the potential for a medical malpractice incident.

So far, the environmental marketplace has been divergent in their response to COVID-19. Over the last 7-14 days, a few carriers have established that all new environmental quotes issued will contain a virus or coronavirus- specific exclusion or some form of communicable disease exclusion. On the other hand, some of CRC’s environmental carriers have taken the opposite approach and are viewing this outbreak as an opportunity to provide affirmation of varying degrees of coverage for virus/bacteria by including it in the policy’s definition of microbial matter, pollutant, or pollution condition. Some policies may cover bodily injury, property damage and clean-up costs while others may only offer coverage on a sub-limited basis for clean-up costs or disinfection expense. In either case, the bodily injury and property damage coverages are 3rd party claim triggers, while disinfection or clean-up is commonly a first party coverage.

D&O is another area that will likely feel the impacts of COVID-19. Just a week ago, the U.S. Securities and Exchange Commission advised companies to disclose information related to coronavirus, which could have implications for an influx of public company D&O claims. Private companies could also be impacted. In the past, outbreaks have generally not resulted in substantial D&O litigation, but over the past few years, event-driven litigation has become a greater focus. Adverse corporate events including accidents, explosions, mass tort episodes, sexual harassment claims, and cyber issues have impacted business operations and led to litigation. Additionally, if appropriate business interruption coverage isn’t in place, and there is an economic loss that leads to a plummet in stock prices, then a D&O claim could emerge. For public companies, policyholders should ensure they are in compliance with SEC disclosure guidelines and that they maintain an environment of transparency regarding earnings projections, workforce reductions, etc. to ensure that shareholders are continuously aware of the organization’s financial and operational status. Both private and public companies face decisions concerning operations and personnel, which may impact management’s fiduciary duties. 

EPL coverage may be impacted if an employer were to discriminate against an employee for falling victim to the virus, refusing to travel, or requiring work-at-home arrangements. Employers should adhere to ADA and FMLA guidelines while also keeping an eye on wage and hour laws to ensure employees are compensated appropriately.

Increasing payouts under trade credit policies are expected with the encroaching recession threatening the global economy, with an accompanying rise in insolvencies. The impact of COVID-19 will only serve to exacerbate the credit situation worldwide. The largest trade credit insurers are Atradius, Coface and Euler Hermes. Attradius has been quoted that it expects corporate insolvencies to grow 2.4% globally in 2020. Moody’s statistical data indicates that Atradius and Coface have nearly 15% of the total net potential exposure in Asia and Australia, two of the worst hit regions.

You are encouraged to reach out to your contacts at The Plexus Groupe for further explanation.  Additionally, we have provided resource links here.

We will continue to monitor this extremely fluid and uncertain situation and stand ready to address your insurance coverage questions and concerns.

THANK YOU FOR BEING A BUSINESS PARTNER OF THE PLEXUS GROUPE AND BE SAFE!